Weak March leads to Strong April in MuniLand

Tale of two Months

March- April

MuniLand Report

· With the yield curve now normalized, we’re continuing to buy MuniBonds yielding over 4.50% (priced to a 9–10 year call) and selling “ripe” bonds yielding under 3% with just 1–3 years to maturity or call.

· This is our “Buy Wholesale – Sell Retail” methodology in one sentence.

March MuniBond Report

· The Bloomberg Municipal Index posted a total return of -2.3% in March

· Muni issuance totaled $50bn, higher than the $35bn average supply for March over the past few years, with net issuance of $30bn.

· Yields above 4.50% and Tax Equivalent Yields approaching 9% are gettable in the new issuance market.

· In March, MuniBond Mutual Fund flows were net-positive.

Weak March Returns –

Combination of Iran Excursion plus Seasonal Weakness

· This marked the 5th weakest March performance since 1990, trailing only the returns seen in March 2002, 2022, 2020, and 1994. The result was also 210 basis points weaker than the median March return over the period from 1990 through 2025.

· The negative returns for exempt investment-grade municipals were driven primarily by Iran conflict-related yield curve movements. Between February 27 (the final trading day of February) and March 31, the AAA MMD curve shifted higher by an average of 42 basis points. The shift was more pronounced in the 10-year and longer maturities, rising by an average of 52 basis points, compared to a more modest 37 basis point increase for maturities outside that range.

· Historically, the months of March & April exhibit seasonal weakness every year. With an eye on April 15^th Federal and State income tax filing deadline, many investors are at best reluctant to commit capital to bonds and at worst are selling bonds to raise capital for tax payment.

Strong April Returns

· MuniBonds returned 1.15% measured by The Bloomberg Municipal Bond Index

· First positive April return since 2021 and the strongest April since 2014

· YTD new issuance totals $178bn up 6% year over year

· MuniBond Fund Flows were net positive.

“Advantage Strategy” at work…

“Buy Wholesale / Sell Retail” Methodology

March 2026

· We purchased a new issued Holly Springs NC Water & Sewer….

AA2-rated

1. Yield was 4.64% priced to a 2036 call

2. Maturity is 2055

3. 100 bonds purchased at 102.98 or $102,976

· To raise capital to secure the Holly Springs NC, we positioned “ripen” Munis for a sale.

EG:

1. We sold Grand River Hospital AA rated, Unlimited GO

2. These Bonds mature in 2032 and have a 2028 call… the yield curve told us this is a candidate to sell at retail pricing.

3. 2.81% was the high bid yield priced to the 2028 call

4. One client sold 100 bonds at $106.22 or $106,220 plus $1764.44 accrued interest… total proceeds of $107,998.44

5. Client receives a 65% increase in yield plus 5 more years of call protection

April 2026 Buys:

1. New Issue

Texas Mun Gas Acquisition

5% coupon, 2036 maturity

Not callable.

4.48% yield to maturity

A3 rated, enhancement company is Citi Group

2. New issue

Cumberland Valley School District, Pennsylvania

Limited GO, AA/A rated

Assured Guaranty

PA Act 150 School District Intercept

4.74% yield to 2034 call, 2053 maturity

TEY over 8% for the high earning Pennsylvania resident

3. New issue (my school district!)

Tredyffrin-Easttown School District, Pennsylvania

Limited GO

Aaa rated

4.48% yield to 2033 call, 2048 maturity

TEY over 8% for the high earning Pennsylvania resident

Conclusion

March and April are seasonally weak months in MuniLand due to the April 15^th filing deadline. Additionally, the volatility in stocks, oil and the rise in interest rates from the Iran War contributed immensely to the weak March 2026 returns.

Uncharacteristically, April 2026 posted strong historical gains.

Looking ahead on seasonal technicals, the MuniBond market has left the pre- April 15^th Income Tax Filing season (typically weak) and is now entering the May-August strong seasonal technical with more bonds maturing and coupon payments than forecasted new supply (new issuance)… more demand than new supply

Regardless, investors buy MuniBonds for predictable tax-exempt income and return on principal. Equity-like Tax Equivalent yields remain gettable on the 20-year plus maturity priced to a 10-year call about 8%, even pushing 9% & 10% TEYs

The successful investors, whose capital has a 5-year plus runway, buy the long bonds, accrue more interest on a daily basis, and then reinvest the bond interest.

The Outcome will be More Income,

W. Jeffrey Watkinson, MBA

Co-CIO

484-540-9218

jeff@watkinsoncap.com